Saving Social Security!

For What It’s Worth….    main

Here are some compromise solutions that Congress is ignoring.  Obviously, congressional Republicans are resisting any solution that the administration might claim credit for during the next election cycle.  Regardless, here are some ideas that we can push for.

Social Security:
Since fewer dollars are flowing INTO SSA, Social Security must sell off more of its assets ahead of schedule.  Some Congressmen claim that Congress must to pay more out of general revenues and THAT is a direct fabrication!  Opponents of Social Security use this cash flow situation as a reason to reform or “opt” from Social Security without acknowledging that their actions have aggravated the Social Security problem!

Further, Social Security is not really a “tax.”  It is an annuity with some insurance added in.  You have probably seen the ads on TV with the gorilla in the room and advertising “guaranteed income for life.”  Well, that’s what Social Security is!  AND, we are living longer and will draw upon the trust fund for more years in the future.

Additionally, SSA is NOT a true Ponzi scheme!   A Ponzi scheme fails because the underlying assets are false or non-existent.  Ponzi schemes fail because new participants cease and the existing participants loose their money. 
    First: SSA’s underlying assets are U.S. Government bonds. 
    Second: The nation’s population IS growing, not shrinking.  Attempts to “opt out” would undermine the system and THAT is the underlying strategy of “opt out.”

Suggestion/Compromise:

1. Stop cutting the Payroll Tax and return the diverted funds immediately.  The net cash flow would be the same and avoid complications involving the SSA trust fund.

2. Use the Tax Code for economic stimulus and not Social Security for economic stimulus. Subsidizing the economy is not part of the SSA charter!

3. Continue to increase the Full Retirement Age, FRA, to age 70 along the lines suggested in the last Trustee’s Report.  One economist on CNBC calculated that this would resolve about 60% of the future funding problems.

4. Raise both the employee and employer contribution by .25% each. This would pretty well resolve the future gap in funds flow.  Yes, raise the "premium on this annuity.  We are living longer.  As it is now, few Americans are saving anywhere enough to build their own retirement security!

5. Do NOT allow “opting out” of Social Security!  No matter how one slices it or dices it – there will always be a lower quartile and lower half of our national community that lack the perspective, experience or education to make effective long-range financial plans.  “Opt Out” is a very bad idea that could seriously injure many, many Americans! During the last two market downturns of 2001 and 2008 approximately 50% of private investors lost money in the markets. And how many people lost money in Social Security?  ZERO!

6. Return income taxes paid on Social Security benefits back to Social Security!  Yes, taxes are collected: You will have to pay federal taxes on your Social Security benefits if you file a federal tax return as an individual and your total income is more than $25,000."  If you file a joint return, the threshold is $32,000.

7. Lifting the cap on income subject to FICA taxes, currently set at $106,800 for 2011 and going to $110,100 in 2012   Some suggest raising the cap to $190,000 while others suggest raising the cap to "unlimited."  Raising the income cap to about $125,000 would be far more realistic.  Further, the cap should be raised by the same percentage as CPI used to calculate benefit COLA.

8. Do NOT include mandatory withdrawals from retirement accounts (at age 70 1/2) in calculations of how much Social Security benefits are to be taxed as described in #6 above. 

9. Finally, separate Social Security and the other "trust funds" from the government budget. These trust funds must be run independently from the political tugs-of-war and budget warfare. 

Worth noting – For those who feel Social Security should include some kind of “needs base” for benefits there is already a benefits weighting towards low income persons.  They are called “Bend Points.” Further, higher income recipients can end up paying income taxes at their incremental rates.  Thus, the bottom line is that higher income recipients get a less proportionate benefits than lower income persons!  Additionally, there are proposals that will add a FICA tax on "unearned income" for high income persons.

Remember, SSA is precisely what the central government should be doing – providing security for the general population in ways that individuals could seldom achieve, regardless of their capacity or lack of it.  Those who can handle their own retirement finances are likely to be earning enough money to invest independently in their own IRA’s and ROTH accounts, etc.  But, do you recall how disastrous the stock market was for private investors during the down-turns in 2001 and 2008?  Social Security is a safety net for everyone.   Bottom line is that Americans have already paid into the system and are truly entitled to receive their benefits just as any other holder of U.S. debt.   It is not the government’s place to use the SSA trust funds to finance “economic stimulus” and then attempt to weasel out of their commitments.

 

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Searching for solutions avoided by politicians and activists!

Social Security:  Millions of people have paid into this trust fund with certain expressed conditions and returns.  Social Security contributions now equal about 40% of the Federal revenues

What is seldom mentioned is the fact that Social Security is the largest holder of Federal debt- more than twice of China's holdings.  (Convenient Summary.

These funds are as equally valid as any other debt issued by the Federal government. Also see SSA Is Not Broke!

Without Social Security we would end up with an aged poverty class unable to contribute to the national economy and dependent upon wellfare!